Is This The Toughest Challenge Yet For UK Water Companies?

Posted on 26 February, 2016 by Watershed Issues Team

2015 was a key year for the water industry, as we moved into the sixth asset management period (AMP6). The new AMP phase poses possibly the biggest challenge yet for UK water companies, in terms of maximising performance and reducing the cost of delivering services. We explore why, on Watershed Issues:

An integral part of the asset management period process is the business plans review, whereby Ofwat considers the costs that each water company puts forward and assesses them against what they considered to be the most efficient cost for delivering the service.

Water companies originally proposed £45.7 billion of expenditure they deemed was necessary. Ofwat then challenged these costs as they considered they were not efficient or justified, and granted only £44.3 billion, i.e. a £1.4 billion reduction in cost.

In addition, Ofwat has set the water companies challenges on the cost of capital, ensuring that customers are kept at the heart of their business and pay less for their water, ensuring that the sector is one in which customers can have trust and confidence.

Essentially, water companies are being asked to reduce their original estimated cost for the service they provide, which in some cases means more than a 25% reduction. This huge task will not be achieved without seriously questioning how current practices can be improved and/or changed.

One of the areas which provides greatest opportunities is how the water companies deal with the supply chain and in particular with the pipe supplier. To maximise impact on cost and efficiency, early involvement of the supplier is critical. This will ensure that water companies receive the best advice and support from the start of a project, which can mean a saving of millions of pounds.

A reputable supplier will be able to provide support at the design stages of a project, making sure the benefits of the material of choice are maximised and that no re-designing of the project is required at a later stage; something that takes place all too often.

Respectable suppliers are experts on their material and will have the capability of advising on all aspects of pipeline design and installation and sometimes even on operational costs, which would represent real economic benefits to the water industry, well beyond cost savings on products alone.

Many of the projects in which Saint-Gobain PAM UK is brought into have already been designed. In over 90 per cent of cases, Saint-Gobain PAM UK is able to suggest design improvements and in many scenarios avoid system failures due to inadequate design. Saint-Gobain PAM UK has seen countless instances in which these savings have reached hundreds of thousands of pounds.

It is likely that pipe suppliers of other materials will also be in a similar situation and this is where bringing a supplier on board from the start can have a massive impact in minimising TOTEX.

This sort of approach would be a huge step-change for the industry and an innovation in the processes in which the industry operates, but certainly it is worth the cultural change. It is about closing a gap in the way the industry currently operates and working together to save money and to innovate.

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